5 & 10 Year Yields

In the last post, Eclectic lays down the challenge that Yields are not going higher, and (according to him) certainly not over 5.250% on the 10 year.

Let’s have a look see at some charts, to see if we can gander what might be possible:


5 Year Bond Yield

The Yield on the 5 year has broken its downtrend, and also surpassed its October 2006 highs.

Now lets look at the 10 year:

10 Year Bond Yield

Clearly in In an uptrend, making a run at the 2006 highs of 5.25%.

We could easily see the 10 year yield hitting 5.5% later this year.


Rising Rates in Our Future
Barron’s WEDNESDAY, JANUARY 31, 2007

Graphics courtesy of Barron’s

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What's been said:

Discussions found on the web:
  1. CDizzle commented on Feb 1

    Barry’s implications went off as a 2-5 fave at the Mirage. Eclectic is a 2-1 dog.


  2. shawn commented on Feb 1

    Barry, I thought you were pretty well versed in technical analysis since you pull out this trend analysis. But, I am not so sure if you are doing it correctly?

    What you are showing off is a short or medium term trend. If you take a look at 10 years or 20 years of chart on 30-year, 10-year yield, they are clearly in a long trend down, and that bigger trend line has yet to be challanged.

    So till then, I think it’s better not to judge the whole jungle by just 1 tree.


    BR: On the 5 year, thats a weekly 1 year chart — and I’d agree its a medium term duration — but the 10 Year Bond Yield chart covers a decade plus — that’s sufficient time to be considered long term.

    From 2000 to 2004, the Fed was cutting rates. Since then, they have removed much of the accomodatioin — but Real (after inflation) rates are still loose — juts not so loose as before.

  3. theroxylandr commented on Feb 1

    I have money ready to invest in 10-30 years T-bills as soon as they get around 5%.

  4. Donaldo commented on Feb 1


    You are right that the long term trend is down. But yields could still go up (maybe temporarily) in a secular down trend. Yields did not come down in a straight line over the long term. Moreover, if yields go up this year to 5.25%, they’ll hardly break the long term trend. So it’s possible that we’ll see yields go up this year.

    My own personal opinion is that the 20+ years of bull market in bonds is over.

  5. Michael C. commented on Feb 2

    shawn said What you are showing off is a short or medium term trend. If you take a look at 10 years or 20 years of chart on 30-year, 10-year yield, they are clearly in a long trend down, and that bigger trend line has yet to be challanged.

    Why in the world would you look at a 10-20 year trend if your interested in how bonds will close at the end of 2007 (in less than 1 year)?

  6. Macro Man commented on Feb 2

    Because the resistance level off the monthly closes on the 10 year yield is 5%, a trendline that’s been touched 6 times in the last 20 years.

  7. Eclectic commented on Feb 2

    Well, it’s fun to have a little challenge with some inspired do-sa-do:


    …but let’s be sure to quote one another accurately:

    Per U:

    “In the last post, Eclectic lays down the challenge that Yields are not going higher, and (according to him) certainly not over 5.250% on the 10 year.” …end quote

    If you’ll read my challenge again, I didn’t zackly say that yields are “not going higher,” or implicitly that they “can’t” go higher, but simply that I was willing to venture a hundred bucks worth of goodies against a Mr. Big Pic Cluck on The Greatest Story Never Told Show if the 10-y-t closed above 5.250 on the last business day of 2007.

    I then carefully set the decimal observation such that 4.999 or 5.250 are nulls for the goodies and good luck for the cluck, but that, say, 5.251 or higher puts you in the money. For unlike our corporate brethren who don’t seem to know how to clearly define the options related to the outlay of good earnest money, I do.

    You then countered with the possibility that the challenge might be acceptable if terms were modified in some fashion as to permit a win for you upon the mere occurrence of a cracking of 5.25 at any time before last b-d-2007.

    This sent me to the depths of my knowledge of human psychology (depths unknown to common man), especially that component of it related to what I’ll call: “Big Mouth Bombastia” or that special art practiced often by voting or non-voting members of the FOMC other than the chairman, who do from time-to-time rattle markets up or down in galloping gulps of basis points, only to then be force-fed the same BPs in the opposite direction through a straw.

    One notable example: Mr. Fisher of Dallas, who might at the drop of a hat show up at some backyard barbecue or clogging:


    …and, he, born of a purposeful conviction about what the FOMC will, might or ought to do, or about what he thinks inflation is, ought to be or will be, could in a twinkling single-handedly drive rates high enough to do-sa-do me out of my goodies, while at the same time also waltzing hundreds of millions of bucks out of the net worth of a now older, now more careful, now more income dependent, now more risk averse and now rapidly growing body of baby boomin’ bonafide bond buyers.

    Self-same action would also drive the dollar higher, killing off the last pontoon load of U.S. exports and possibly the Chi-Town survey, the Philly, the Empire, and the ISM, as well as likely drive mortgage rates high enough to precipitate a thunderstorm of ill wind in the mortgage and housing markets, and set the ADP and the BLS in a downward do-sa-do of their own.

    So, after this careful retrospective, and in view of my often stated observation that interest rates in the U.S. are NOT historically low but actually beginning to be quite high, when viewed from the perspective of those who’d reached puberty by the time Nancy (not Jessica) sang “These Boots Are Made for Walking:”


    …I’ve decided to try a piece of you on… but not with a spikey risk to 5.25. Nosiree, if you want different terms than I first offered, okay, but we’ll just go on the spike alone, and the spike has to touch 5.50 before the calendar reads “2008.”

    Your move.

  8. Eclectic commented on Feb 2


    Anybody want to comment on the history of interest rates in the U.S. up until the time this album cover was shot?

    Where were you in 1966?

    Lee Hazelwood wrote the song:


    Supposedly, he asked Nancy Sinatra to sing it as though she were a 16-year-old about to dump a 40-year-old man.

    I reckon human nature hasn’t changed that much since 1966.

    What I’m trying to say is that when a person has grown up in an environment of quite high interest rates, it may be difficult to understand that those higher rates were actually an unusual circumstance of history… and while they may come again (I certainly can’t know), in order for it to happen, Mr. Bernanke, a committed monetarist, would have to be born-again into some different econo-philosophical skin.

  9. blam commented on Feb 2

    Speaking of “monetarists:

    Milton Friedman

    “[I]nflation is a lot like alcoholism. When you drink, the good effects come first, and the hangover comes the next morning. When an inflationary period [i.e., the launch of an easy monetary policy era] starts, spending goes up and employment rises along with it. By printing money at a faster rate you may be able temporarily to create an appearance of prosperity, but only so long as you fool the people. Once the public comes to realize what is going on, higher inflation means higher unemployment! Just look at the example of the U.S., Great Britain, and every other country.” –1977

  10. Teddy commented on Feb 2

    I agree with BR. This interest game is not over. It’s going into overtime. Yes, the concentration of wealth continues which reinforces the secular trend of lower interest rates, but nominal interest rates for more than 20 years before the stock crash were not only higher than the inflation rate, but also higher than nominal GNP. Not no more. In fact, in spite of little Ben’s sermon the other day, I still think that real interest rates are negative, money supply is exploding up worldwide, and more importantly THE US CONSUMER WAS ADMITTED TO THE EMERGENCY ROOM IN 2002 AND HAS BEEN ON LIFE SUPPORT SYSTEMS EVER SINCE AND EVERYBODY IN THE WORLD IS TRYING TO REVIVE HIM, WHICH IS INFLATIONARY.

  11. Michael commented on Feb 2

    Barry, maybe you could elaborate on a theme that I have proposed for about 2yrs now. I have previously stated that we will enter a period of inflation that at some point, I believe by the end of this year, will get away from the fed. However, this will not be 70’s type inflation, just much worse that the fed is comfortable with. After a year or two the fed will overdo things leading into a deflationary type period that will last much longer. Maybe a decade or so. The obvious reasons for this thought is that everyone who has debt is tied to very low rates. Your rates go up, you get hammered, the fed comes back for one more time, pumping liquidity and lowering rates, but this time you don’t borrow the money because you’ve been burned by two different bubbles. To comment on the the interest rate piece by Barry, I think the fed is standing in shit and they don’t have a shovel big enough for all of it.

  12. Mike_in_FL commented on Feb 2

    In the “big picture,” I tend to agree with Jim Grant, who said the great bond bull market ended in May 2003 when the 10-year yield touched 3.37%. If you look at a monthly chart, it appears to me that we’re in the process of making an inverted head and shoulders bottom. The left shoulder would be in 1998, during the LTCM panic … the head would be the 2003 low and the right shoulder would be right around now. From the 2003 low, we tested the uptrend in yields — and held — in June 2005 and again in early December 2006. Unless and until we break that uptrend line, I think we’re still in a “bull” mode for yields.

  13. Phil commented on Feb 2

    My guess: The Fed can and will hold yields below 5,5%. Since everything above that level would slaughter the “now stabilized” housing market and consumer. Furthermore as Volcker puts it: There are preasures to keep inflation up! The Fed knows about the problems consumers cope with and they know about the bonds in China/Japan/MidEast. Thus, they buy bonds when yields hit 5.25%.
    Don’t underestimate the purchasing power of the Fed!

  14. Philippe commented on Feb 2

    Are the ten years yields representing a natural balance of demand and supply? (ie when is the ten years yields hoardings from primary dealers and repo’s holders starting to play on the nature of the curve the prices and the yields ? before 2005 2004 ? 2003?) Obviously the more is purchased and the more prices are driven up and yields down and when close to “slow growth” or recession,the capital gain can occur and drive yields up in a middle of a recession.

    It seems difficult to introduce a technichal analysis on parameters which are not reflecting a more natural balance of supply and demand.
    As difficult now to argue on the inverted yield curve predictive power.

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